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Signatures or PINs? EMV is Coming

Whether you are a seasoned, international road warrior, or a domestic suburbanite, new security features will soon be showing up on a credit card near you. In light of recent card data compromises, there’s a new drive to adopt credit card security technologies known as “Chip and PIN” (typically noted as “chip/PIN”) to better secure credit card data against fraud or compromise. While chip/PIN is new to most U.S. cardholders, it is the norm across most of Europe, Canada, and Mexico. There have been many initiatives in the last several years to drive U.S. payment card systems towards more secure technologies, but only now is adoption of chip/PIN starting to get increased traction across the U.S. payment card industry.

For individual card holders, these developments are important, and in this post we will cover some of the key points of these technologies.

First, what exactly is chip/PIN and what does it do to protect credit card data?

In a chip/PIN environment, when purchasing goods at a point of sale (POS) device, the credit card is inserted or “dipped” into a card reading device—not swiped as it is in the U.S. Once inserted, the customer inputs a PIN which authenticates the cardholder against the chip embedded on the card. Upon successful authentication, the chip generates the data necessary to complete the transaction and transmits the data for authorization.

Before we get too far into the discussion about chip/PIN, there is one point that needs to be clarified: The chip component of chip/PIN cards is sometimes referred to as “EMV data” or “EMV transactions” in the payment industry. The term EMV (for Europay, MasterCard and Visa) refers to a standard definition for chip-based payment cards, or “chip cards”—also referred to as “IC (integrated circuit) cards” as defined by EMVCo LLC. EMV is the basis for the chip/PIN implementation throughout Europe, and is planned for implementation in the U.S. (more on that, below). In short, EMV refers to the “chip” portion of chip/PIN cards, with the “PIN” implementation being a separate matter entirely.

Why is this relevant? Because much of what has been discussed thus far about implementing chip cards in the U.S. is focused primarily on the “chip” component, and does not necessarily include the “PIN” component that is otherwise present in Europe’s EMV environment. In lieu of using a PIN to authenticate the chip card, discussions in the U.S. have leaned toward reliance on manual signature verification (such as when a clerk compares the signature on the receipt to the signature on the card). As a result, the U.S. implementation will likely wind up being referred to as “chip and signature” or “chip/signature.”

What’s the difference between chip/PIN and chip/signature?

From the merchant’s perspective the credit-card payment process wouldn’t change significantly, outside of likely hardware upgrade requirements. And from the processor’s perspective, there really isn’t a difference, as long as they process or support transactions using EMV, or “track-equivalent data.”

Track-equivalent data is the data — including cryptographic data — used for transaction authentication and authorization within EMV environments. It is generated by the on-board integrated circuit, or the “chip,” on the card itself—not the card-reading device. This is not to say that track-equivalent data is “secure” in-and-of-itself. Because of some of the underlying functional requirements, track-equivalent data typically includes certain discretionary data elements, some of which are sensitive in nature and cannot be stored (something merchants should note).

From the cardholder perspective, however, there is one notable difference and that is the requirement of a PIN or signature to verify that the person holding the card is the actual card owner.

Is chip/PIN more or less secure than chip/signature?

That depends.

In a chip/PIN scenario, the PIN is used to authenticate the cardholder against the information stored on the chip. If you don’t know the PIN, the chip won’t give up the information necessary to complete the transaction. In a chip/signature scenario (theoretically speaking), the clerk responsible for completing the transaction would be required to validate the customer signature on the receipt with their signature on the card. If your signature doesn’t match sufficiently enough per the clerk’s perusal, they won’t complete the transaction. Say what you will about how consistently the practice of signature verification is actually practiced, versus how it is supposed to in theory, there are equally compelling arguments for either approach.

In a chip/PIN environment, as long as the cardholder’s PIN is kept secret, it would be theoretically impossible for someone to use a stolen card to perform fraudulent card-present transactions. It is because of the PIN requirement that card criminals have evolved their data collection strategies to include video surveillance targeting PIN entry devices, such as at ATMs and retail point-of-sale devices, to collect customer PINs. Once the PIN is compromised, the card can be used for fraudulent transactions. On the other hand, I can show my signature around to anyone, put it on all my receipts, etc., and the likelihood of anyone being able to reliably reproduce it on demand is pretty slim (expert forgers, excluded). Ultimately, the question boils down to this: Which is a more secure means to verify that a credit card belongs to the person holding the card?

Conclusion

It can be erroneously concluded that U.S. implementation of EMV heading in the direction of chip/signature undermines many of the anti-fraud security protections of chip/PIN. However, when the issue is considered from multiple sides, especially in putting everything together for this article, the more it is clear that there is no significant security benefit of one solution over the other. Whether it is PIN or signature, the control is only used to authenticate the cardholder—the rest is about implementing security controls via EMV and integrated circuit cards that has nothing to do with either PINs or signatures. Until there is historical data to demonstrate the effectiveness or ineffectiveness of signatures vs. PINs in reducing card fraud, the jury is still out on which solution offers a significant upside over alternatives.

Ultimately, whether cards are authenticated via PIN or signature, the chip-based credit cards being rolled out in the U.S. will rely upon EMV security measures to protect the security of credit card data. These technologies provide a solid foundation for improving the overall security of credit card information and limiting fraud and misuse of compromised credit card data.

Thank you, Leigh. You make an excellent point on the risk/liability considerations when using signatures or PINs. It will be interesting to see how the attribution of liability will evolve in the U.S. if we wind up relying on signature verification.